I just finished reading Steve Jobs by Walter Isaacson. Great book. And the chapter on the making of the iPod revealed something I didn’t know before and got wrong in my book. I thought Apple engineered the iPod from scratch, but actually they contracted with a company called PortalPlayer whose prototype became the basis of the iPod.
I criticized Microsoft for fumbling the Zune launch by basing the first version on an existing Toshiba player, but actually both Microsoft and Apple got to market faster by using existing hardware designs. Of course, a key difference is that Apple heavily modified what PortalPlayer brought to the table. Whereas Microsoft customized the device, Apple reworked the entire user interface.
But there’s another, more important, factor I did get right. I criticized Microsoft for not investing nearly enough in the Zune to complete with the iPod. I wrote:
What does it take to go head-to-head with an industry leader in con- sumer electronics on visceral, behavioral, and reflective design?
Four billion dollars.
That’s how much Microsoft invested to build the Xbox game console business to compete with Sony’s PlayStation.19 There’s an interesting contrast between the Zune and the Xbox business outcomes. In 2001 the Xbox went to war with the Sony PlayStation, which, like the iPod, held the lead for several years before Microsoft entered the market. Unlike the Zune, the Xbox hardware and software were developed in-house and included new graphics technology that gave the Xbox a strategic advantage. In 2005 Microsoft released the second Xbox version, the 360, and went to great lengths to achieve world-class industrial design, first by hiring several different firms to submit designs and then hiring two more firms to submit even better ideas (Figure 5.9). The following year Microsoft released the first Zune. Whereas the Xbox found success from all-new designs, the Zune was created by revamping an existing Toshiba media player. The cost to create the Zune business was somewhere in the hundreds of millions of dollars, as compared to the Xbox’s $4 billion investment to develop the console and the service, create the marketing campaign, and attract third-party developers to develop games.
By contrast, Apple–I learned from the book–spent even more than I imagined on the iPod. Jobs is quoted as saying,
I had the crazy idea that we could sell just as many Macs by advertising the iPod. In addition, the iPod would position Apple as evoking innovation and youth. So I moved $75 million of advertising money to the iPod, even though the category didn’t justify one hundredth of that. That meant that we completely dominated the market for music players. We outspent everybody by a factor of about a hundred.
So did Apple simply outspend Microsoft? Of course not. I argue that Apple won on reflective design, and I think I still have that right. You can judge for yourself if you read the book.
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